Inflation can erode the value of your money, but real estate investments can provide hedge. How does this work?
1. Rent Growth Keeps Pace with Inflation
One of the primary drivers of real estate’s inflation resilience is rent growth. As inflation pushes up the cost of goods and services, rents tend to rise as well. Multifamily properties, for example, typically adjust rents annually, allowing property owners to keep pace with inflation.
2. Hard Assets Appreciate Over Time
Real estate is a tangible asset, and its value tends to rise alongside inflation. The cost of building materials, labor, and land often increases, driving up property values and providing a hedge for investors.
3. Leverage Fixed-Rate Debt
By using fixed-rate debt, real estate investors effectively lock in today’s borrowing costs. As inflation increases, the real value of the debt decreases, making it cheaper over time while rents and property values climb.
4. Demand for Essential Housing and Services
Multifamily and self-storage facilities provide services that remain in demand regardless of economic conditions. During inflationary periods, these investments have historically benefitted from both consistent occupancy and rising rental income.